'Nice-to-have HMRC guidance not a replacement for regulating umbrella companies at Autumn Budget 2021'

Critics of still-unregulated umbrella companies hope the government doesn’t expect 1300 words of new HMRC guidance to clean up the UK supply chain’s ‘Wild West.’

Sent by HMRC to ContractorUK late last week, the guidance advises “what you can do to reduce your risk of using a non-compliant umbrella company.” It is now available online.

'Nice-to-have'

Despite running a brolly herself, Clarity Umbrella’s Lucy Smith says the guidance is a “nice-to-have” shy of the ideal -- Autumn Budget 2021 regulating the likes of her business.

“I guess [these four chapters of some 1300 words] are a step in the right direction. Now [we] just [need] steps [by the chancellor on Oct 27] for regulation to make it irrelevant,” she said.

Knowing that next Wednesday will be demanding of Rishi Sunak, two campaigners have sent a blueprint for brolly regulation to the business department’s parliamentary under-secretary.

'Unfair, unethical, and astounding'

In particular, to help protect umbrella contractors, Paul Scully MP should get the government to sufficiently fund the Single Enforcement Body, or boost the budget of the EASI.

The campaigners, accountant James Poyser and lawyer Rebecca Seeley Harris further tell Mr Scully: “IR35 has created the growth of umbrellas leading to an unfair and unethical market.”

“It is astounding that companies handling millions of pounds of other people’s pay, remain unregulated. It is an unsustainable situation for workers, employers and taxpayers.”

'Great, but...'

Shown HMRC’s freshly published umbrella compliance guidance, which is primarily aimed at recruiters and end-users, Ms Seeley Harris said it was “great.”

“But of course, what we [really] need are legislative compliance measures and regulation of the umbrella company sector,” she said, implying ‘great’ guidance won’t cut it on its own.

Boss at ReLegal Consulting and a former Treasury secondee, the lawyer added: “[So] fingers crossed that the Single Enforcement Body gets funded in the Spending Review.”

'Schemes still allowed to thrive'

If Mr Sunak fails to action SEB funding next Wednesday, he will be storing up some very difficult questions both for himself and HM Treasury, according to Professional Passport.

“Tax avoidance and disguised remuneration schemes regularly appear on the chancellor’s agenda. Yet they are still allowed to thrive.

“So it does beg the question as to whether [Mr Sunak], the government, and HMRC are serious about addressing…[them],” the group’s Crawford Temple told ContractorUK.

Another reviewer of umbrella company compliance, WTT Consulting, believes a more radical response to rogue operators is needed.

'End-client must be made responsible for every supply chain error'

But the advisory’s Graham Webber isn't holding his breath it will happen -- neither at next week’s Autumn Budget nor at any other time.

“Umbrellas are born from commercial needs,” he started off in a post. “The end-client and/or agency in the supply chain do not wish to take on obligations connected with employment.

“So they insist upon brollies to take on the duty of tax deduction and payment. The problem is that the fee is low, is paid by the wrong party and umbrellas are a source of tax avoidance.

“Umbrella reform therefore needs to start by HMRC and government saying that the end client is responsible for EVERY error in the supply chain.”

'Professional brolly bodies should be even better'

The WTT tax director continued: “Do that, and umbrellas would largely disappear overnight. [But] will it happen? Not a chance.”

Similarly taking to LinkedIn, albeit to clarify that the disappearance of umbrellas is not its aim, off-payroll.org said last week it wants sector bodies to be “even better” than they are.

“Banning offshoring in opaque jurisdictions is ‘even better’”, exampled the site, condemning a new decision by one body, the FCSA, to accept as members UK umbrellas which have up to 25% of their operations offshore.

The LinkedIn post continued: “Being ethical, not just lawful, on holiday pay is ‘even better.’ [And] representing umbrella workers [by having umbrella contractors on the board]…is even better [still].”

'New service to help find compliant umbrellas'

Describing himself to be “exasperated,” accountant Mr Poyser, who is the boss of inniAccounts but also off-payroll.org’s founder, said he would this week launch a new service to “help workers find umbrellas.”

Due to focus on compliance, the service will let contractors view UK umbrellas based on their credentials (including whether offshore or not), with each brolly receiving an overall compliance ‘score.’

Ashley Olliver, of Compass Contracting & Employment sounds like he might be one of the new service’s first subscribers.

“There needs to be more transparency in our sector,” Mr Olliver wrote online. “I would strongly advise any agencies that use payroll providers to engage and pay contractors to clarify if they have any of their operations outside of the UK. And [if so, ask] ‘why?’”

'Many non-compliant umbrellas are offshore'

In its guidance on Thursday, HMRC said that if an umbrella company were based offshore, “as many non-compliant umbrella companies are,” the responsibility for operating PAYE would likely rest with the UK-based agency in the supply chain.

“Be extremely cautious about working with umbrella companies that are offshore or offer financial incentives,” the Revenue further advised.

“If the offshore umbrella company is operating an avoidance scheme and has not operated PAYE on the payments received by workers, the agency will be responsible for paying the unpaid tax and NICs and may be pursued for this by HMRC.”

'Be vigilant'

The tax authority also said agencies should be “vigilant” of offshore umbrella companies disguising where they are based, by using UK based companies to interact with agencies.

HMRC warned: “In these cases, the agencies are unaware that an offshore umbrella company is involved in the supply chain and are therefore unaware they are primarily responsible for operating PAYE.

“While the potential financial impact of being involved with an umbrella company operating an avoidance scheme is substantial, it is harder to quantify the reputational damage incurred by a business which is found to have been involved with tax avoidance schemes.”

'Autumn Budget likely to focus on disguised remuneration, tax avoidance'

Despite the possibility that HM Treasury might regard HMRC’s new guidance as sufficient to tackle underhand umbrellas (meaning the chancellor takes no further action on Oct 27) Professional Passport suggests exactly the opposite.

In fact, the compliance group indicated it could be a sign of things to come.

Pointing to next Wednesday (when both Autumn Budget and Spending Review are scheduled), Mr Temple predicted: “The chancellor is likely to focus his attention on disguised remuneration and tax avoidance as the government seeks to ensure it collects all the taxes due in the most effective manner”.

Professional Passport’s CEO added: “[Moreover] HMRC has been slow to take a robust stance against ‘schemes’ and stepping up its enforcement activity to shut them down. Questions need to be asked and [without action on the 27th] the government and HMRC [will] need to be held accountable as a matter of urgency.”

'The gauntlet has now been thrown down'

A chartered accountant who runs umbrella company CWC Solutions, Carolyn Walsh, agrees that the umbrella sector could be in for a very busy Autumn Budget.

“This guidance being published at this stage is a sign that HMRC and BEIS officers may be working towards enforcing compliance in advance of the Single Enforcement Body actually being set up.”

Formerly an inspector for the Revenue, Walsh continued in a statement last night to ContractorUK: “The rules have been defined, and the gauntlet has been thrown down for agencies and hirers that may damage workers’ rights…by using non-compliant umbrella companies.

“Furthermore, from the tax office’s point of view, when an investigation starts this well-timed guidance serves to negate any possible defence. It places the responsibility squarely on agencies and hirers, not workers, to ensure compliance is observed in the supply chain.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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